INTERVIEW

“Portugal is not going to need a second bailout”

Economy Minister António Pires de Lima says the program will be exited with a growing economy

Portuguese Economy Minister António Pires de Lima.
Portuguese Economy Minister António Pires de Lima. CARLOS ROSILLO

May 17 is a key date for Portugal. It's the day on which the 78-billion-euro bailout program it sought in April 2011 is due to end and Portugal will supposedly fully return to the sovereign debt market to fund itself. However, it remains to be seen how Spain's Iberian neighbor will emerge from this financial assistance program; whether it will be a clean break without any further support, or the current bailout will be replaced by a softer rescue package that still involves some form of external help.

In an interview with EL PAÍS, Portuguese Economy Minister António Pires de Lima explains that the center-right coalition government of Prime Minister Pedro Passos Coelho will unveil its plans when it believes the moment is right to do so. He is encouraged by the fact the Portuguese economy is already on the road to recovery, although this has yet to become a reality for the population at large.

Among other draconian measures, a brutal increase in taxes, the elimination of extra payments for civil servants and pensioners, wage cuts, and the increase in the standard value-added tax rate to 23 percent have all hit the middle classes hard. The 2014 state budget maintains the fiscal adjustment drive of the previous two years. On top of the withdrawal of extra payments and cuts in salaries introduced in 2012 and the rise in taxes in 2013, this year's budget also includes a further cut in wages for civil servants earning more than 675 euros a month.

Question. Will Portugal exit its bailout program in May?

Answer. Yes, on May 17. Portugal will manage to do so and our creditors, I believe, are increasingly convinced we will.

Q. The question is how Portugal will emerge. Will it be a clean break or will there be a soft bailout with some sort of help?

A. We'll see what option interests us most. Ireland decided the road it wanted to take three or four weeks before its bailout program was due to end. Portugal needs to maintain a margin of freedom and keep its options open until we are very close to the date. We have to choose the best option at the right moment. Both options are good; a cautionary program or an exit without any form of program.

Q. In the case of opting for a cautionary program, will there be more conditions attached?

A. All countries in the euro zone, whether or not they are in receipt of a bailout program, are obliged to meet commitments in terms of their deficit. We have to weigh up the two alternatives we have very well.

Q. Does that mean a second full bailout is totally ruled out?

A. Yes. Portugal won't need a second bailout.

Q. Are you in talks with the "troika" - the European Union, the European Central Bank and the IMF - on the terms of a soft bailout?

We have had to increase taxes and we know that is not good for the economy"

A. I'm only the economy minister [in Portugal, the finance minister is responsible for negotiations with the troika] and I am working to make the economy grow, which is something very important in the whole process of fulfilling the commitments that we have, and is important, above all, for the Portuguese.

Q. Is it possible to grow in times of shortage with austerity policies?

A. The austerity program goes with the fiscal adjustment and that has an economic cost. We have had to increase taxes and we know that is not good for the economy. But in the end run, the road that Portugal has embarked on is one we are proud of because we are going to exit the program with the economy growing.

Q. In its latest report, the IMF suggested that Portugal needed to go further in wage reduction. Will there be more cuts?

A. The position of the government is very clear. Private sector salaries shouldn't be cut. What's more, in my opinion the minimum wage needs to be revised upward next year. Our growth model is based on skilled companies and workers, on innovation. This is the engine that is driving exports. We don't want Portugal's competitiveness to be based on low salaries.

Q. And the public sector? Will there be more wage cuts there?

A. With the measures included in the 2014 state budget, I hope further sacrifices on the part of the public sector won't be necessary. It is not possible to achieve the goal of lowering taxes in 2015 without controlling public spending. We have to reduce the deficit. It's not a question of persecuting public sector workers. What we understand is that we have to have a state with an appropriate structure and that we need to reduce the tax burden. We have already begun to do so with a deep reform of corporate tax, which has been backed by the main opposition party, and is going to be one of the most competitive rates in the EU. In 2015, we are aiming to be in a situation to reduce the tax burden on wages, which have suffered because of the adjustment program.

Q. In order to lower wages in 2015, will you have to raise them in 2014?

I hope further sacrifices on the part of the public sector won't be necessary"

A. The prime minister has identified the tax priorities: first wages, then consumption. There won't be any further tax hikes. It won't be easy given the restrictions we have in cutting spending after the ruling by the Constitutional Court [which has ruled as unconstitutional a number of measures originally in the budget, including the government's plan to cut the state pensions of civil servants in order to bring what they receive in line with private-sector workers]. But we have looked for ways that don't entail further tax hikes. Our aim is to reduce the tax burden. In 2015, we hope to continue reducing tax as we have started to do with companies and workers will benefit from this.

Q. How much room for maneuver to govern have you had during the bailout?

A. The margin is very limited. We are conditioned by the obligation to fulfill the Constitution and the targets fixed for us by the troika. We're keen to exit the program. Not because this automatically means life will change for the Portuguese, because that would be an illusion, but because we're going to recover some of our autonomy.

Q. What message are you conveying to the Portuguese population about when the bailout ends?

A. That the recovery is here. It will take some time for this to filter down to the lives of the public because it is being driven by companies and not by state spending. Only to the extent that economic agents invest and increase wages, will the government be able to lower taxes, and the benefits of this are passed on to the public. Unemployment has been falling over the past nine months. We have created 120,000 jobs, and the jobless rate has fallen from almost 18 percent in March 2013 to 15.5 percent in December.

Q. The economy emerged from recession in 2013. What sectors are driving activity?

A. Portuguese businessmen have changed tack. Before they looked very much to the domestic market. Now they have made the world their market. Exports are growing a great deal; their share of GDP has grown from 28 percent to 42 percent in only four years. The sectors creating the most jobs in the past year were tourism, the farming and food sector and skilled services such as engineering and information technologies.

Q. The public hasn't noticed the recovery.

A. The confidence indicators have improved a lot since May. But on a day-to-day basis, people have yet to perceive the economic growth that has taken place. Life is harder than it was before the crisis.

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